recent carbon market situation and its near-term and long

Copyright @ Asia Carbon Group 2006Copyright @ Asia Carbon Group 2006

N N YuvarajYuvaraj Dinesh Dinesh BabuBabuAsia Carbon GroupAsia Carbon Group

“Recent Carbon Market Situation and its Near-term

and long-term Future !”

1616thth AsiaAsia--Pacific Seminar on Climate ChangePacific Seminar on Climate Change““Climate Change and Development Climate Change and Development ––Asia Pacific Asia Pacific

Regional Approach to Regional Approach to Climate Friendly and Climate ChangeClimate Friendly and Climate Change--resilient Societyresilient Society--””

at Jakarta, Indonesia, 5-8 September 2006


Welcome to Welcome to

CDMCDM--2012: Billion 2012: Billion CERsCERs market !market !


Few numbers to crunchFew numbers to crunch……

Source :UNFCCC as on 2 Sept 2006 and ACG analysis


CDM Projects and categoriesCDM Projects and categoriesNumber (%) of CDM projects in each sector

CH4 reduction & Cement & Coal

mine/bed23%

Afforestation & Reforestation

0%

Energy efficiency

14%

Fuel sw itch4%

HFC & N2O reduction

2%

Renew ables57%

Percentage share of the total number of projects of 3 largest CDM categories

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q1

-0

4

Q2

-0

4

Q3

-0

4

Q4

-0

4

Q1

-0

5

Q2

-0

5

Q3

-0

5

Q4

-0

5

Q1

-0

6

Q2

-0

6

Renewables

CH4 reduction & Cement & Coalmine/bed

Energy Efficiency

Source :UNEP RISOE 9 Aug 2006


CERsCERs : Country & Sectors: Country & Sectors

Source :UNFCCC / UNEP RISOE and ACG analysis


Unequal geographical distribution of CDM in APUnequal geographical distribution of CDM in APER of registered CDM projects in AP (June 2006) Bangladesh

Bhutan

China

Fiji

India

Indonesia

Malaysia

Nepal

South Korea

Sri Lanka

Vietnam

P N G i

AP/World: 102AP/World: 102 out of total 222 registered projects out of total 222 registered projects account for account for 68%68% in ER (46% in number)in ER (46% in number)Among AP: Among AP: China, India, and Korea China, India, and Korea occupy 94.8% of occupy 94.8% of total ER until 2012 (82% in number)total ER until 2012 (82% in number)China may surpass India in terms of total ER until 2012. China may surpass India in terms of total ER until 2012. No projects: No projects: Cambodia, Lao PDR, Myanmar, Cambodia, Lao PDR, Myanmar, PhilippinesPhilippines,, Singapore,Singapore, Thailand Thailand in SE Asiain SE AsiaThe inequity is not due to lack of DNA, as most AP The inequity is not due to lack of DNA, as most AP countries have DNA except some Pacific and Central countries have DNA except some Pacific and Central Asian countries. Asian countries.

Emission Reduction (ER) of registered CDM projects in APEmission Reduction (ER) of registered CDM projects in APNumber of registered CDM projects in APNumber of registered CDM projects in AP

(Source) Made by IGES with data from UNEP RISOE: CDM Pipeline Ov(Source) Made by IGES with data from UNEP RISOE: CDM Pipeline Overview (As of June 20, 2006)erview (As of June 20, 2006)

Number of registered CDM projects in AP (June 2006) Bangladesh

Bhutan

China

Fiji

India

Indonesia

Malaysia

Nepal

South Korea

Sri Lanka

Vietnam

Papua New Guinea

11VietnamVietnam

11Papua New GuineaPapua New Guinea

11FijiFiji

6969IndiaIndia

22NepalNepal

33Sri LankaSri Lanka

55South KoreaSouth Korea

55MalaysiaMalaysia

22IndonesiaIndonesia

1010ChinaChina

11BhutanBhutan

22BangladeshBangladesh

102102Asia & PacificAsia & Pacific

Copyright @ Asia Carbon Group 2006Copyright @ Asia Carbon Group 2006(Source) Made by IGES with data from UNEP RISOE: CDM Pipeline Overview (As of June 20, 2006)

68%

SectoralSectoral distribution of CDMdistribution of CDM：：World vs. APWorld vs. AP

AsiaAsia--PacificPacificWorldWorld

46%

CCEERR

PPrroojjeeccttss

AsiaAsia--PacificPacificWorldWorld

HCF23

N2O

Biomass

Hydro

Landfill gas


CDM and UnilateralismCDM and Unilateralism

Source: Climate Protection Programme: Unilateral CDM – Chances and Pitfalls (November 2003 – Version 3.2 – GTZ)


CDM and UnilateralismCDM and Unilateralism

Source: Climate Protection Programme: Unilateral CDM – Chances and Pitfalls (November 2003 – Version 3.2 – GTZ)

…UL CDM leads to lower abatement cost and higher ER in DCs…


UL CDM : An analysisUL CDM : An analysisGlobally

Source :UNFCCC and ACG analysis


UL CDM : An analysisUL CDM : An analysisGlobally

Source :UNFCCC as on 2 Sept 2006 and ACG analysis


UL CDM : An analysisUL CDM : An analysisCase Study : India

Source :UNFCCC and ACG analysis


Carbon Trading International ScenarioCarbon Trading International ScenarioGlobal carbon market transactions worth €9.4 billion in 2005

Source: Carbon 2006, Towards a truly global market, Point carbon

940194017997993763769494TotalTotal

52527.87.8343488OtherOther

96962828272799JIJI

2,0352,0354014011881886060CDMCDM

7,2187,2183623621271271717EU ETS EU ETS totaltotal

[[€€million]million][Mt][Mt][[€€

million]million][Mt][Mt]MarketMarket

2005200520042004YearYear


Forward Contracts (current practice)Forward Contracts (current practice)For compliance For compliance For private sector investors For private sector investors For trading in the secondary market For trading in the secondary market

Upfront Payment (a few Upfront Payment (a few but rarebut rare))CERs upfront payment on discount basisCERs upfront payment on discount basisProject Equity/Debt in lieu of CERsProject Equity/Debt in lieu of CERs

Spot Trading (yet to take place)Spot Trading (yet to take place)

Secondary Trading (emerging)Secondary Trading (emerging)

Financing and hedging Instruments [Futures/Options, etc.,] Financing and hedging Instruments [Futures/Options, etc.,] (emerging currently)(emerging currently)

Types of CDM CERs DealsTypes of CDM CERs Deals


CERsCERs Price TrendPrice Trend

Source: CDM Highlights 38, Aug 2006, GTZ

Source: State and Trends of Carbon Market 2006, WB / IETA


CDM : Financial Impacts CDM : Financial Impacts


CDM : Upfront offersCDM : Upfront offers

Source :ACG analysis


CDM & Sustainable DevelopmentCDM & Sustainable Development

Quantification & Qualification Quantification & Qualification –– remains a challengeremains a challenge

Monitoring Monitoring –– need for consistencyneed for consistencyLocal SH involvement & awareness raisingLocal SH involvement & awareness raisingValue added carbon credits Value added carbon credits –– G B S G B S -- CDMCDM100 % Upfront financing 100 % Upfront financing –– makes it attractivemakes it attractiveSD benefits Vs Emission reductionsSD benefits Vs Emission reductionsIntegration of rural development policies and Integration of rural development policies and energy security & accessenergy security & access


CDM : Institutional ReformsCDM : Institutional ReformsTo make DNA infrastructure permanent Refine approval process : DNA – SectoralMinistry Linkage for approvalInternational & domestic procedures to screenprojects : avoid carbon credits flooding the marketRegional and state level CDM agenciesNational, Regional and State level policies andprogramme : CDM as an acceleratorLocal Climate Change Centres of Excellence (3CE) : to link Research – Academics – FieldEnsure international post 2012 process on track


CDM and Technology TransferCDM and Technology TransferNational portfolio approach always a +CDM TT incubation centresIndigenous TT & South South TT : not to be ignored Integrated service : National & Local FIs(due diligence, techno-economic appraisal, tech portfolio etc.,)

FI – Technology Suppliers : join force (e.g. REEEP-X)Outreach pilot & success on a large scale for accelerating replicationNational / Regional level fund for seed fund / low cost debt / guaranteeNeed to keep transaction costs low, retarding TTTT for SMEs :Huge investment support needed (e.gESCOs)


CDM : Financial barriersCDM : Financial barriers

Unification of environmental benefits : Unification of environmental benefits : Carbon CreditsCarbon CreditsAlliance : National & International Alliance : National & International FIsFIsProject Equity based funds crucialProject Equity based funds crucialAdditionalityAdditionality : Not mere a number game: Not mere a number gamePricing of carbon credits : role of Pricing of carbon credits : role of exchanges and financial productsexchanges and financial products


CDM :CDM :SectoralSectoral approachapproach

LULUCF LULUCF –– slow but steadyslow but steadyTransportation Transportation –– Public and captive fleetPublic and captive fleetSMEsSMEs : Industrial and Commercial: Industrial and CommercialUrban municipal needs based projects Urban municipal needs based projects

(MSW / EE in water supply / Sewerage / T&D (MSW / EE in water supply / Sewerage / T&D losses)losses)

Rural population oriented projectsRural population oriented projectsAdaptation projects based credits !Adaptation projects based credits !


Meaningful participation of NA IMeaningful participation of NA I

CERsCERs discounting method discounting method All post 2012 All post 2012 CERsCERs for meeting NA I targetsfor meeting NA I targetsTo also include Govt. projects and ODA projectsTo also include Govt. projects and ODA projectsPrompt start appliedPrompt start appliedNA I Emission trading linksNA I Emission trading linksNA I Trading NA I Trading Exchange(sExchange(s) to boost liquidity) to boost liquidityTechnology Technology –– Financing Exchanges encouragedFinancing Exchanges encouragedGradual but enhanced inclusion of Gradual but enhanced inclusion of SMEsSMEs

Political uncertainty : not considered !Political uncertainty : not considered !


ACG ACG –– An OverviewAn OverviewGroupGroup’’s activities conceptualized, researched and developed since 2001s activities conceptualized, researched and developed since 2001

Founded : Feb 4 2003 two years ahead of Kyoto coming into forceFounded : Feb 4 2003 two years ahead of Kyoto coming into force

Presently operating 14 entities in 9 countries Presently operating 14 entities in 9 countries

Strong presence in The Netherlands (Annex I) :Developing CDM andStrong presence in The Netherlands (Annex I) :Developing CDM and JI JI projects where we also aggregate Buyersprojects where we also aggregate Buyers

Strong Asian presence through Singapore (Non Annex I); Develop Strong Asian presence through Singapore (Non Annex I); Develop unilateral CDM projects and also Aggregate Sellers of CERs from unilateral CDM projects and also Aggregate Sellers of CERs from Non Non Annex I countriesAnnex I countries

Strategic Alliance with Kanso Technos in Japan (Annex I)Strategic Alliance with Kanso Technos in Japan (Annex I)

Centres of Excellence in Singapore, Vietnam, IndiaCentres of Excellence in Singapore, Vietnam, India

Advance stage of development for a Centre of Excellence in ChinaAdvance stage of development for a Centre of Excellence in China


GroupGroup’’s Unique Business Models Unique Business ModelVertically Integrated to provide a one stop solution in Vertically Integrated to provide a one stop solution in

carbon advisory, carbon finance and carbon asset managementcarbon advisory, carbon finance and carbon asset management

Carbon Advisory

Carbon Asset Management

Carbon Finance & Project Finance

AC CE

AC-ADF™

ACXChange™


Operational since February 2005Operational since February 2005

1) Identify, fund & develop PDDs for CDM/JI projects1) Identify, fund & develop PDDs for CDM/JI projects2) Manage Carbon Assets2) Manage Carbon Assets

Projects :Projects :Projects identified and under development in Projects identified and under development in Vietnam, India, Indonesia, Sri Lanka, Singapore, Vietnam, India, Indonesia, Sri Lanka, Singapore, Malaysia and PhilippinesMalaysia and Philippines

ACAC--aDFaDF™™


Project Portfolio Highlights 1Project Portfolio Highlights 1past 12 months..past 12 months..

15 MW grid connected small scale wind power project57 MW grid based hydro power10.8 MW grid connected small scale hydro power project16 MW grid connected large scale hydro power project24 MW grid based hydro power14 MW grid based hydro power

Initial CDM feasibility study for 90 MW captive power project – switch from Diesel to Natural Gas in Indonesia

Partial list …


Project Portfolio Highlights 2Project Portfolio Highlights 2

Waste heat recovery and grid connected wind power project7.5 MW grid connected small scale biomass power project20 MW grid connected large scale biomass power project21 MW grid connected large scale biomass power project14 MW grid connected small scale wind power project5.5 MW grid connected small scale wind power projectBoiler Fuel Switch power project13.6 MW Fuel Switch power projectWaste heat recovery power projectBiomass gasifier based power project30 MW bagasse cogeneration project19.5 MW grid connected large scale wind power project

Pre-feasibility study on Technical Loss Reduction in the ElectricityDistribution Sector of Sri Lanka under CDM


Projects in the pipelineProjects in the pipelineFood waste to energyFood waste to energyMunicipal Solid Waste to PowerMunicipal Solid Waste to PowerFuel Switch in Public Transport sectorFuel Switch in Public Transport sectorForestryForestryEnergy Efficiency n Public LightingEnergy Efficiency n Public LightingN2O destruction projectN2O destruction projectPFC reduction project PFC reduction project Energy Efficiency in HVACEnergy Efficiency in HVACACG has covered almost all the 6 GHG Emissions that qualify ACG has covered almost all the 6 GHG Emissions that qualify for CERs and for CERs and ERUsERUs through our various projects through our various projects ACG also has capability to prepare new methodologies for ACG also has capability to prepare new methodologies for acceptance by the Executive Board, UNFCCCacceptance by the Executive Board, UNFCCC


ACXACX--ChangeChange™™First on line exchange in the world to

Provide a common platform for Sellers and Buyersof Carbon Assets

Outside of EU Allowances

Web based 24 x 7

Built in registry and trading facilities

Soft launch – Carbon Expo - May 2005, Cologne, Germany.

Fully operational since November 2005

Carried out five consecutive online auctions to date

Re launch new look and feel platform – May 2006, Cologne, Germany


ACXACX--Change : Our Value PropositionChange : Our Value PropositionACX:

Links CDM community to Global Carbon Market

Understands Carbon Asset Management is fundamental in a carbon

constrained world and places emphasis of this in the carbon market value

chain

Increases comfort levels for both sellers and buyers

Provides much sought after opportunity for optimizing real time returns

Ensures Effective tools in place for transacting carbon assets (cost, efforts,

standardization etc.,)

Practical Solution for price questions

No window shopping, no guesswork, no hawking and no bucket shops

Real time one stop solution for CERs transactions (from trade to ERPA

negotiations and custodian)

Least cost solution provider for management of CERs


ACXACX--CERs Auction PlatformCERs Auction Platform


Buyers Bids

ACX CDM Auctions ACX CDM Auctions –– An AnalysisAn Analysis

Price of CERs on same project

10.2510.5

5

6

7

8

9

10

11

0 2 4 6 8 10 12 14

Number of Bids

Pri

ce p

er C

ER

, Eur

os

200420052006200720102011200820092012


ACX-Change CER Auction - An Overview

180180130 610 890 230

9.5

6.2

13.23

7.1

6.2

5.05

6.2

55.3

4

54

6.75

11.9

5.7

9.2

5.03

4

0

100

200

300

400

500

600

700

800

900

1000

25th Nov 2005 16th Dec 2005 13th Jan 2006 16th Feb 2006 21st Apr 2006 24th Aug 2006

CE

R V

oum

e tr

aded

, x 1

03

0

2

4

6

8

10

12

14

€ /CE

R

CER VolumeHighLow Close


““The supreme reality of our time is the vulnerability of our planThe supreme reality of our time is the vulnerability of our planet.et.””–– John F. KennedyJohn F. Kennedy

Thank youThank you

N.YuvarajN.Yuvaraj Dinesh Dinesh BabuBabuHead, Climate Change, Director, Carbon TradingHead, Climate Change, Director, Carbon Trading

Asia Carbon International B.V Asia Carbon International B.V (Incorporated in The Netherlands)(Incorporated in The Netherlands)

150, Cecil Street, #10150, Cecil Street, #10--0303SingaporeSingapore--069543069543Ph:+65 62251791Ph:+65 62251791

Fax:+65 62251562Fax:+65 [email protected]@asiacarbon.com

www.asiacarbon.comwww.asiacarbon.com

recent carbon market situation and its near-term and long

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